So the emerging market rally was not so unstoppable after all.

Though nobody was betting that June would not produce its own trials and turns at some point, the manner of last week’s retreat in risk assets has left investors trying to decipher whether it is a sign of things to come or just an opportunity to reflect on the strides taken so far.

The MSCI Inc’s emerging markets stocks index dropped 1.8 per cent on Monday, extending last week’s decline of 1.6 per cent, while a similar gauge of currencies slipped 0.3 per cent. The equity index now looks to have failed in its attempt to break above the 200-day average, after rising above it last week for the first time in three months.

“We would liken the nascent market rally to a baby just learning to walk, confident in his or her abilities, but cognisant of the potential dangers lurking around every corner,” said Todd Schubert, Singapore-based head of fixed-income research at Bank of Singapore.

The dangers remain manifold, from the possibility that a second wave of Covid infections could derail the global recovery to an escalation of US-China tensions in the run-up to America’s November presidential election.

A warning by the sister of North Korean leader Kim Jong Un over the weekend that the next action will come from the army will likely add to investors’ caution.

Underscoring those anxieties, JPMorgan Chase’s measure of implied volatility for EM currencies rose last week for the first time in more than a month.

Investors will turn to central bank decisions this week for clues on the next phase, with the average yield on developing nation currency bonds still close to an all-time low. Policy makers in Indonesia, Russia and Brazil are predicted to cut interest rates to bolster their economies, eroding real yields.

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